InvestorQ : I am holding shares of Bharti Airtel and Vodafone idea and am worried about the outlook for the sector. What do you suggest
indhumathi Sayani made post

I am holding shares of Bharti Airtel and Vodafone idea and am worried about the outlook for the sector. What do you suggest

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shrinidhi Rajan answered.
2 years ago
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Here are a few important points you need to remember before taking a call on whether you want to hold on to Airtel and Vodafone Idea.

· Narendra Modi-led government is currently working on a relief package for the industry. While the exact nature of the package is still being worked out there are positive indications.

· One thing that is likely is the reduction in license fees from current level of 8% of adjusted gross revenues (AGR) and a clear waiver of penalties and interest on past dues as permitted in the Supreme Court judgement.

· It is reported that one of the considerations is also a reduction in interest rates to market-linked rates; and a moratorium on dues. That means the AGR payable will be excluding the penalty and interest and will be payable over a period of 8-10 years.

· While you can be more confident about Bharti Airtel due to its strong and profitable operations, there is a distinct possibility that Vodafone Idea Ltd may end up in bankruptcy court.

· The good thing for these companies is that most of the debt of the telecom industry is held either by the government or by government-owned banks. Any default will have severe implications for the government’s own finances apart from pulling down the already strained banking sector. Hence a rescue package could be liberal and immediate.

· At the end of the day, for Bharti Airtel the impact will be material but in the case of Vodafone, the impact could be a lot more serious.

· The real issue could be in the prices and the cut throat competition that has become a reality since Jio entered the fray in 2016. That is hardly sustainable for Jio and Telecom consumers who have had it great, with progressively declining tariffs over the past many years. Clearly, the real problem is the cut-throat pricing in the industry and it remains to be seen if the TRAI will do something about that; although unlikely.

For now you can hold on to both the companies but keep a tab on the rescue package.

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